The large-cap stocks, including China Construction Bank, CITIC Bank and Great Wall Motor, suffered big falls in the closing two minutes oftrade on Dec. 20 after orders from the investors were executed.The share prices quickly recovered the next trading day.

In a statement posted to its official Twitter-like Weibomicroblog two days later after the drop, the Shanghai StockExchange said the unusual movements were due to adjustments inan influential stock index tracked by foreign investors, whichcaused these investors to adjust their holdings.

The exchange said in the statement on Weibo it would furtherinvestigate the movements.

That investigation revealed that four foreign firms hadplaced large orders with local brokerages to adjust theirportfolios in line with changes to the FTSE Xinhua China A50Index, which tracks the 50 largest A-share companieslisted in Shanghai and Shenzhen, the paper reported.

The brokerages waited until the final two minutes beforemarket close to execute them, causing steep falls in the pricesof shares whose index weightings had been adjusted downwards,the exchange found.

Guotai Junan, Orient Securities, and CICC did not answercalls seeking comment. UBS Securities declined to comment inreply to an email seeking a response.

These firms are accredited under the Qualified ForeignInstitutional Investor (QFII) program, the main channel throughwhich foreign investors can access China's capital markets.

While the QFII investors were not accused of any wrongdoing,the exchange criticized the securities companies the QFIIs hiredto conduct their trades, China Securities News reported.

Brokerages have a responsibility to consider the impact onthe broader market when they receive and execute client orders,the exchange said, according to the paper.

In deciding to execute a large volume of client orderswithin a short period, these brokerages negatively influenced"market order" and violated rules governing exchange members,the exchange found, according to the paper.

The exchange plans to take "corresponding self-disciplinaryactions" and to coordinate with government regulators on furtherinvestigation, the paper reported, without elaborating.